Around the Street

Experts Talk GDP, Home Sales, Greece Downgrade

December 22, 2009

Bloomberg BusinessWeek compiles comments from Wall Street economists and strategists on the key economic and market topics of Dec. 22. Staff analysts, Action Economics U.S. existing home sales rose 7.4% in November to a 6.54 million-unit annual pace, from a revised 6.09 million in October (was 6.10 million). This is a third straight monthly gain and is the highest pace of sales since February 2007. Single-family sales were up 8.5%. Condo/coop sales were flat. The supply of unsold homes fell to 6.5 months, from 7.0 months in October. The median sales price rose to $172,600, vs. a revised $172,200 (was $173,100). On a year-over-year basis, the pace improved to -4.3%. The data are better than expected but might have been aided by expectations of the end of the home buyer tax credit. David Greenlaw, Morgan Stanley [The government on Dec. 22 reported a] larger-than-expected downward revision to [third-quarter] gross domestic product. The main downside surprises were in consumption, government, and inventories. The adjustment to inventories pushed up our tracking estimate of current-quarter GDP from +4.1% to +4.2%. The downward revision to consumption was attributable to some new information on outlays for services from the Census Bureau…We had been expecting a slight upward revision to consumption, based on the retail sales data. The inventory contribution in Q3 was adjusted down slightly—to +0.7 percentage points (vs +0.8 percentage points previously). The pace of inventory liquidation remained quite sizeable in Q3 (-$139 billion), just less so than in Q2 (-$160 billion). Hence, there was a significant positive contribution to gross domestic product growth. We look for a further slowing in the pace of destocking in coming quarters. In fact, the expected inventory contribution in Q4 is now +2.3 percentage points. However, we don't expect to see an outright build-up of business stockpiles until early 2011. There were small downward revisions to the key deflator categories—the headline chain weight index for GDP was adjusted down to +0.4% (from +0.5% previously) and the core [personal consumption expenditures] price index was revised to +1.2%( from +1.3% previously). Chris Scicluna, Daiwa Securities Moody's cut Greece's sovereign ratings by one notch to A2, from A1, leaving the outlook negative. This still leaves Moody's ratings significantly higher than Standard & Poor's and Fitch, with Moody's still assessing the risk that Greek bonds will fail to meet {European Central Bank] eligibility rules as "remote." Nevertheless, after the latest underwhelming Greek fiscal plans, the Moody's decision is hardly a surprise and a further downgrade would not be unlikely. And the announcement has helped to push Greek 10-year [bond] yields above 6.0% for the first time in more than 9 months.